A SHAKE-UP in East Kent's water supply arrangements could flow from the Government's decision to block the £2 billion sale of Southern Water to a French-owned company.

The proposal emerged after competition watchdogs ruled that the sale to Vivendi Water UK - part of French giant Vivendi Environnment - would be against the public interest unless certain conditions were met.

One condition might be switching responsibility for supplying water to Thanet customers from Southern Water to Folkestone and Dover Water Services, already owned by Vivendi. Southern Water's water-only interests in Hastings would also be hived off to Folkestone and Dover, and the new large company sold off.

Another possible option is to sell Southern Water's supply interests in Hampshire and the Isle of Wight.

If neither option is agreed, Vivendi might be ordered to sell off some of its existing interests. The deadline for a final recommendation is February 21.

The delay in reaching a decision creates further uncertainty for Southern Water staff at its local headquarters in Capstone Road, Chatham.

The Southern Water - Vivendi deal came unstuck when the Competition Commission objected to the loss of an independent company used to compare performance with others.

The Director General of Water Services, the industry regulator, included Southern Water in its comparison of water companies to assess efficiency and promote higher standards.

A Vivendi spokesman said the company was "surprised and disappointed" by the Government's intervention but it remained committed to buying Southern Water. Southern Water said it noted the announcement and awaited further developments. "

Southern Water, previously owned by Scottish Power, was sold to First Aqua with prior agreement to sell Southern on to Vivendi.